Despite obstacles, Canada’s oil and gas sector has bright future

Canada will have a robust oil and gas industry well into the future, even with increased action to reduce greenhouse gas emissions, according to the Canada Energy Regulator.

Canada is a large oil and gas exporter with the opportunity to benefit from growing world oil and gas demand as emerging economies raise their standard of living and move away from coal.

Those calling for a shut-down of Canada’s oil and gas industry ignore the practical realities of energy markets and the benefits the sector provides.

The CER recently released its flagship annual outlook report, Canada’s Energy Future. Here are the highlights:

Understanding the Scenarios

Like previous CER reports, Canada’s Energy Future 2021 uses different scenarios to paint a picture of what could happen in the coming decades.

This year there are two main ones: Current Policies, which takes into account regulations that exist today, and Evolving Policies, which assumes that action to decrease GHG emissions increases “at a pace similar to recent history.”

Canadian oil and gas production remains resilient in both scenarios, largely based on international exports.

Oil

In the Current Policies scenario, Canada’s total oil production increases to six million barrels per day in 2028, up from 4.9 million barrels per day in 2019. Production continues to increase through the forecast, reaching 6.6 million barrels per day in 2050.

With increased action to reduce emissions, total oil production increases to 5.8 million barrels per day in 2032 and stays about five million barrels per day until 2047. At the end of the forecast period, Canadian oil production is 4.7 million barrels per day, just under the 4.9 million barrels per day produced in 2019.

The CER says Canadian crude oil production levels are resilient even with increased action to reduce emissions because of the nature of oil sands facilities, which are long-lived and have low operating costs once built.

Keep in mind that world oil demand is expected to increase to 108.7 million barrels per day in 2050, up from 98.6 million barrels per day in 2019, according to the International Energy Agency (IEA). If Canada doesn’t satisfy this demand, other countries will.

Natural Gas

In both its scenarios, the CER says investment in Canadian natural gas production comes from growth in liquefied natural gas (LNG) exports. Canada’s first LNG exports are assumed to begin in 2024.

In both scenarios, LNG exports rise to 3.7 billion cubic feet per day in 2032. In the Current Policies scenario, LNG exports reach 7.1 billion cubic feet per day in 2044 and remain at that level through to 2050.

In the same scenario, Canada’s total natural gas production increases to 22.2 billion cubic feet per day in 2050, up from 15.7 billion cubic feet per day in 2019.

In the case of increased action to reduce emissions, the CER projects that Canada’s LNG exports will rise to 4.9 billion cubic feet per day in 2039, and will stay at that level through 2050. Meanwhile, total Canadian production modestly decreases to 13.2 billion cubic feet per day.

The IEA projects that global natural gas demand will increase to 180.6 trillion cubic feet in 2050, up from 143.9 trillion cubic feet in 2019. The growth is expected to be driven by Asian countries transitioning off high-emitting coal-fired power.

Oil Pipelines

The CER’s outlook suggests that under current policies, western Canada will require additional oil pipeline capacity beyond what is already planned to come online in the next three decades.

In 2019, there was capacity to export approximately 4.3 million barrels per day out of western Canada via pipeline and rail. The CER assumes that grows to approximately 5.3 million barrels per day in 2023 and does not increase after.

In the Current Policies scenario, oil supply available for export increases above that capacity — to 5.4 million barrels per day — in 2031, and rises further to 5.8 million barrels per day in 2050.

In the Evolving Policies scenario, crude oil available for export from western Canada “comes very close to, but stays slightly below” pipeline and rail export capacity, the CER says, with available supply reaching 5.1 million barrels per day in 2029.

Natural Gas in Canada

The CER’s outlook show that natural gas will play an important role in Canada’s domestic markets in the future.

Notably, natural gas is required to ensure reliable electricity as more intermittent wind and solar enters the market, and natural gas is a pathway to zero-carbon hydrogen production, when paired with carbon capture and storage (CCS) technology.

Under Current Policies, natural gas-fired power rises to approximately 120 terawatt-hours in 2050, up from 70 terra-watt hours in 2019. With increased action to reduce emissions, Canada uses 69 terawatt-hours of natural gas-fired electricity in 2050, essentially the same as in 2019.

In both scenarios, natural gas-sourced hydrogen starts production in 2026, at 10,000 tonnes. Under current policies, this rises 43,000 tonnes in 2050. The increase is even higher in the Evolving Policies scenario, reaching 2.7 megatonnes by the end of the outlook.

(CEC)